The Past and Future of American Finance: American Experimentalism Without American Exceptionalism

Abstract

This piece introduces the distinction between financial regulatory reform and institutional reconstruction and argues that efforts in the US and other countries to reform the regulation of finance can and should serve as a first step towards institutional reconstruction. The financial crisis has revealed a series of problems that can be adequately addressed only by initiatives designed to reorganize the relation of finance to the real economy. These problems, we now understand, apply to every country in the world, including the United States. To illustrate the nature and range of alternatives that can serve as points of departure in the project of institutional reconstruction, I contrast three different programs of reform in the area of finance in the US setting: the New Deal reforms; the current regulatory reform agenda (i.e. the “current deal”); and an alternative approach, which I call the “better deal.” I develop the contrast among the three projects by considering five dimensions of change in the basic organization of finance. The purpose of this simple typology is to encourage and to guide us in the search for usable institutional innovations. Two main premises underlie the development of my argument here. A first premise is that the contemporary debates about the adequacy of established institutional arrangements apply to the United States just as much as they do to any other country. A second premise is that many of the concepts and categories required both to understand and to reshape established institutional arrangements exist in the form of legally-defined institutional detail. They are inevitably informed by conceptions of law as well as by ideas about the role of finance in our democracy and in our economy. Legal analysis matters; it has an indispensable – and misunderstood – role to play. It represents a starting point for the disciplinary approach we need in order to understand opportunities and constraints in the world today for transforming finance and other areas of social practice.